Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
IAS 36 Impairment of assets
When should an entity test for impairment?
Intangible asset w All other assets
Goodwill indefinite useful life
– when indication for
– annually – annually impairment
(internal/external) IAS36.9
IAS36.10
What is impairment loss? IAS 36.59
Amount by which carrying amount of asset Indicators for impairment
exceeds recoverable amount IAS 36.12
CA > recoverable amount
Recoverable amount: Fair value less costs to sell IAS36.28/29
IAS 36.18
Higher of Value in use
How to calculate impairment loss How to calculate value in use IAS36.30
Test for impairment loss @ end of year i = pre-tax discount rate
1. Get CA @ end of year after-tax rate / (72%) = pre-tax rate
2. Get recoverable amount
Cost model
Difference = Impairment loss IAS36.59
n = remaining useful life @ end of current year
Journal entry PMT = cash inflow – cash outflow
Dt. Impairment loss (SPL) Or use CFj
Ct. Accumulated depreciation (SFP) PV = value in use
Land @ revaluation
model
Revaluation model
Impairment loss = revaluation decrease
(IAS36.60)
If there is impairment
To OCI the extent that a revaluation surplus is
available, otherwise to SPL (IAS16.40) Reconsider residual value,
remaining useful life and
Journal entry depreciation method
Dt. Revaluation surplus (OCI) Change in estimate (IAS 36.17)
Dt. Impairment loss (SPL)
NEW
Ct. Land (SFP)
, After impairment or impairment loss
is recognised
❖ New CA
❖ New future depreciation
(IAS36.63) IAS 36.110
❖ New deferred tax (IAS36.64) Assess at end of each reporting
period if prior impairment loss no
longer exists
Reversal of impairment loss
Cost model
1. CA with impairment
2. Recoverable amount
3. CA with no impairment (LIMIT) IAS36.117
CA with impairment No impairment (LIMIT)
Depreciation
New CA → recoverable amount
As normal
Remaining useful life @ beginning of current year
= Answer = LIMIT
Reversal: LIMIT – Answer
Do not use recoverable amount given
Limit replaces this amount
Journal entry
Dt. Accumulated depreciation (SFP)
Ct. Reversal of impairment loss (SPL)
NEW
Land @ revaluation
Revaluation model
Reversal of Impairment loss = revaluation increase (IAS36.119)
Recognise in OCI but first to SPL to the extent that it reverses revaluation decrease
Journal entry
Dt. Land (SFP)
Ct. Reversal of impairment loss (SPL)
Ct. Revaluation surplus (OCI)
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